Retrospective change hurts retirees

The big end of town doesn’t often support the need for greater scrutiny of legislation surrounding their practices, however, Ian Silk is bucking this trend.

While Malcolm Turnbull may believe that a royal commission into the financial services sector is unnecessary, AustralianSuper’s Chief Executive says that his fund, worth $100 billion, is supportive of such a move. As the first institutional shareholder of the big four banks to do so, it’s a gutsy move, but one he’s not worried about. “I reckon you’ve got to have a pretty sunny view of life to think that the banks are going to change their behaviour and conduct of their own volition, so if there’s going to be an external catalyst for that, such as a royal commission, I’m pretty relaxed about that,” Mr Silk said.  

The lack of confidence in the financial services sector can be largely attributed to poor banking behaviour caused by “conflicted remuneration”. “Conflicted remunerations are designed with particular outcomes in mind and the financial planners and insurance assessors who have not acted in the interest of their customers have been acting consistently with the overt or covert directions of their employers.”

Speaking to the Financial Review on Monday, Mr Silk also believes that the Government will have to discard some of its highly prized superannuation changes that were announced in Budget 2016/17, as it will be difficult to get them past the Senate. “It will be a test for their negotiating ability because it is going to be a challenge,” he said.

The reforms he thinks will pass both houses, largely due to Labor Party support, would be limiting the tax-free earnings for retirees with more than $1.6 million in retirement income funds and the low income superannuation tax offset.

However, it would be more difficult to secure support for the reforms that would hit the middle of the market – caps on concessional and non-concessional contributions.  

Despite much discussion about whether or not capping non-concessional contributions at $500,000, backdated to 2007 was retrospective or not, Mr Silk is in no doubt of the effect it has already had. “The new $500,000 cap was retrospective to a degree and it seems pretty clear the Government will now be under some internal party room pressure to modify that.”

The measure has prompted a jump in inquiries not just from AustralianSuper’s members who have had their immediate retirement plans thrown into disarray, but also from those without sufficient balances that would result in them being affected.

“Because there is that element of retrospectivity it just feeds into the fears some people have about putting money into super,” he said.

The changes will also disadvantage those who had planned to catch up on their retirement savings in later years, meaning a retirement income shortfall and a greater reliance on the Age Pension.

“It will hurt some people who are trying to catch up their super contributions in those later years, particularly women, so if the change to concessional contributions was to be reviewed and the status quo retained that is certainly something I would be comfortable with,” Mr Silk said.

Noting that the Labor and Liberal Party objectives on superannuation are similar, it was, he said, more important to focus on the disadvantaged low income workers who get no tax concessions on their super. And this is why the low income superannuation tax offset should be supported.

Read more at AFR.com
Read more at SMH.com.au

Do you agree with Mr Silk’s comments? Should a Royal Commission into the financial services sector be top priority for the Government? Should it go further and cover all areas of retirement income? Do you think the limiting of non-concessional contributions to $500,000, backdated to 2007, is indeed retrospective?

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Written by Debbie McTaggart

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